[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                      CHINA'S PREDATORY TRADE AND 
                          INVESTMENT STRATEGY

=======================================================================

                             JOINT HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

                                AND THE

                  SUBCOMMITTEE ON ASIA AND THE PACIFIC

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 11, 2018

                               __________

                           Serial No. 115-149

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        
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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID N. CICILLINE, Rhode Island
MO BROOKS, Alabama                   AMI BERA, California
PAUL COOK, California                LOIS FRANKEL, Florida
SCOTT PERRY, Pennsylvania            TULSI GABBARD, Hawaii
RON DeSANTIS, Florida                JOAQUIN CASTRO, Texas
MARK MEADOWS, North Carolina         ROBIN L. KELLY, Illinois
TED S. YOHO, Florida                 BRENDAN F. BOYLE, Pennsylvania
ADAM KINZINGER, Illinois             DINA TITUS, Nevada
LEE M. ZELDIN, New York              NORMA J. TORRES, California
DANIEL M. DONOVAN, Jr., New York     BRADLEY SCOTT SCHNEIDER, Illinois
F. JAMES SENSENBRENNER, Jr.,         THOMAS R. SUOZZI, New York
    Wisconsin                        ADRIANO ESPAILLAT, New York
ANN WAGNER, Missouri                 TED LIEU, California
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
JOHN R. CURTIS, Utah

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
         Subcommittee on Terrorism, Nonproliferation, and Trade

                        TED POE, Texas, Chairman
JOE WILSON, South Carolina           WILLIAM R. KEATING, Massachusetts
DARRELL E. ISSA, California          LOIS FRANKEL, Florida
PAUL COOK, California                BRENDAN F. BOYLE, Pennsylvania
SCOTT PERRY, Pennsylvania            DINA TITUS, Nevada
LEE M. ZELDIN, New York              NORMA J. TORRES, California
BRIAN J. MAST, Florida               BRADLEY SCOTT SCHNEIDER, Illinois
THOMAS A. GARRETT, Jr., Virginia

                                 ------                                

                  Subcommittee on Asia and the Pacific

                     TED S. YOHO, Florida, Chairman
DANA ROHRABACHER, California         BRAD SHERMAN, California
STEVE CHABOT, Ohio                   AMI BERA, California
TOM MARINO, Pennsylvania             DINA TITUS, Nevada
MO BROOKS, Alabama                   GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania            THEODORE E. DEUTCH, Florida
ADAM KINZINGER, Illinois             TULSI GABBARD, Hawaii
ANN WAGNER, Missouri
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Derek Scissors, Ph.D., resident scholar, American Enterprise 
  Institute......................................................    11
Robert D. Atkinson, Ph.D., president, Information Technology and 
  Innovation Foundation..........................................    24
Mr. William Alan Reinsch, Scholl chair in international business, 
  Center for Strategic and International Studies.................    50

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Ted S. Yoho, a Representative in Congress from the 
  State of Florida, and chairman, Subcommittee on Asia and the 
  Pacific........................................................     6
Derek Scissors, Ph.D.: Prepared statement........................    14
Robert D. Atkinson, Ph.D.: Prepared statement....................    26
Mr. William Alan Reinsch: Prepared statement.....................    53

                                APPENDIX

Hearing notice...................................................    76
Hearing minutes..................................................    77
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California: Material submitted for the record.........    78
Written responses from the witnesses to questions submitted for 
  the record by the Honorable Ted S. Yoho, a Representative in 
  Congress from the State of Florida, and chairman, Subcommittee 
  on Asia and the Pacific........................................    86

 
            CHINA'S PREDATORY TRADE AND INVESTMENT STRATEGY

                              ----------                              


                        WEDNESDAY, JULY 11, 2018

                     House of Representatives,    

         Subcommittee on Terrorism, Nonproliferation, and Trade

                                  and

                 Subcommittee on Asia and the Pacific,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 2:00 p.m., in 
room 2172 Rayburn House Office Building, Hon. Ted Poe (chairman 
of the subcommittee) presiding.
    Mr. Poe. The subcommittees will come to order. I want to 
thank everyone for their patience. As you know, we were in the 
middle of votes when this scheduled hearing was supposed to 
start. Without objection, all members may have 5 days to submit 
statements, questions, and extraneous materials for the record, 
subject to the length limitation in the rules. I now recognize 
myself for my opening statement.
    No nation on earth has benefited more from the post-war 
world order than China. From freedom of the seas to free 
markets to free exchanges of ideas, China has harnessed the 
international system built by the U.S. and its allies to become 
a major world power.
    In the last 30 years with the global economy, more than 800 
million in China have come out of poverty. But despite these 
achievements, China does not want to play by the rules. Rather 
than help preserve the global system that allowed China to grow 
rapidly, it is exploiting its vulnerabilities to gain a 
strategic edge over competitors.
    China has no intention of becoming an equal partner in the 
world community. They do this by cheating. Just as the Chinese 
Communist Party does not want rivals at home, it wants to fix a 
global system that ensures its dominance and no other country. 
This includes surpassing the United States as the leading 
economic, political, and military power.
    To achieve economic dominance, China has resorted as I have 
said to cheating. This includes enacting policies such as 
stealing intellectual property from the United States and other 
countries, forcing transfers in exchange for market access to 
technology, imposing discriminatory licenses on foreign 
companies while subsidizing competing Chinese companies that 
try to operate throughout the world, and intentionally 
investing in American companies to acquire sensitive U.S. 
technology.
    Beijing is also intentionally overproducing steel and 
aluminum to drive down prices--we call that dumping--to make it 
harder for competing producers to remain profitable. 
Ultimately, billions of dollars and millions of jobs in the 
United States have been lost because China cheats. China has 
shown no sign of changing its course. Instead, it has launched 
two major schemes to strengthen its economy and expand its 
control of the global economy.
    First, through its Made in China 2025 plan, China is 
attempting to become the leader in high tech industries. To do 
this China is subverting the free market by imposing quotas and 
state subsidies to prevent competition and gain self-
sufficiency. It is also prioritizing the takeover of foreign 
tech companies through state-owned enterprises. Combined with 
state-sponsored cyber theft, China hopes to monopolize high 
tech innovation and production at the expense of the United 
States' national security and its allies and their national 
security.
    Second, China has launched the ambitious Belt and Road 
Initiative. Chinese officials claim the project is intended to 
strengthen trade across Africa, Asia, and Europe to revive and 
modernize the ancient Silk Road. But in reality, the Belt and 
Road is a debt trap for--debt, D-e-b-t--for vulnerable 
economies that only benefit China. By providing massive loans 
to high-risk markets China fools developing nations desperate 
for investment into believing it's a win-win deal for 
everybody.
    However, 89 percent of the construction contracts go to 
Chinese companies, not the company or country in which the 
investment is made. Chinese workers and Chinese materials are 
involved. Meanwhile, the host country is left paying the debt 
when the projects go bust. Meanwhile, Beijing bribes and 
coerces local governments ensuring Chinese influence. Bribery 
is a national policy by the Chinese. This results in countries 
being forced to side with Chinese interests are accepting a 
Chinese military presence. Additionally, this practice fuels 
corruption in struggling democracies.
    China does not share our values. We have long since seen 
this in their human rights records and now it is obvious in 
their trade policies as well. We could spend a whole hearing 
talking about the abuse and human rights violations of China 
with its own people and different religious groups in China. In 
2001 we encouraged China's inclusion in the World Trade 
Organization. We thought China was evolving from the backward 
political theories of the past and opening up a free market and 
rule based. We were wrong. The liberalizing economic reforms we 
expected never came, instead the government increased its 
intervention in the economy.
    So it is time we adapt our trade policies while working 
with our allies to confront China's bad behavior. Beijing has 
proven it is not a responsible partner and a fair player in the 
global economy. It should suffer the consequences. This hearing 
will help us decide what those should be.
    China does have enormous potential as a massive population, 
its history of innovation and trade dating back thousands of 
years. It doesn't need to cheat. And then there is the issue of 
the South China Sea where China is building islands to control 
the commerce. China needs to be held accountable for its 
behavior, not rewarded.
    And I will now recognize the ranking member, Mr. Keating 
from Massachusetts, for his comments.
    Mr. Keating. Thank you, Mr. Chairman, for convening this 
hearing today. It is timely.
    For months now, tensions have been escalating with China 
around their unfair trade practices and less than a week ago, 
the Trump administration triggered a trade war. China's trade 
and investment tactics have long been a major problem for U.S. 
industries and American workers, and there hasn't been a whole 
lot of success in reining in their multidimensional tactics for 
taking advantage of American businesses and those of our 
allies. So it is a tough problem. China has become the most 
important trading partner of over 100 countries and they have 
aggressively pursued investments around the world that will 
link China with these countries for decades to come.
    So today I hope to focus on what our options are. What do 
we do to control and deal with this challenge and how can we do 
a better job of doing more with what we can actually control? 
What can we do to support our businesses that are under siege 
by China's unfair tactics? What can we do to expand our own 
economic opportunities around the world for American businesses 
and American workers?
    How we should use our multinational institutions to curb 
the unfair model being applied by China around the world and 
instead reward rules-based economic practices that the U.S. and 
our own allies adhere to and which give businesses and 
communities greater certainty and reliability for their 
investments? We should take firm actions against China, but we 
can and should also be advancing our own interests and making 
the most of our own strengths.
    This brings me to the role of our allies. The most recent 
hearing we had in the TNT Subcommittee focused on Russia and 
China and their nuclear arsenals. A consistent theme of that 
hearing was that a major advantage that we have over both 
countries is the strength of our alliances, an advantage they 
don't have. And that is true in both the economic and security 
arenas. We will be stronger the more we turn toward our friends 
around the world and offer them alternatives to Chinese 
investment. And the more that we foster economic ties that can 
support shared values like labor rights, environmental 
protections, and the rule of law, the better off we will be, 
the better off the global economy will be.
    Whether it is joining with our allies and responding 
strategically to China's unfair practices or in being actively 
engaged around the world to promote good governance, rule of 
law, and responsible investments to spur growth in emerging 
economies, we are stronger when we bring our own resources 
together with those of our allies who are also committed to the 
same ideals and goals that we share.
    This is just one reason why I have been discouraged by 
President Trump's penchant for imposing tariffs as the sole 
means of trying to extract what he wants from other countries. 
It is a blunt instrument that brings along with it a near 
guarantee of retaliatory tariffs that simply turn around and 
hurt Americans here at home. He has used them against our 
allies and now he is using them against China. And, frankly, I 
am skeptical this strategy will yield the results that American 
workers and families deserve.
    Americans don't deserve just any action, they deserve a 
comprehensively strategic action that maximizes the possible 
impact and brings with it the greatest possibilities of 
likelihood of success. Where is this coordinated strategy with 
our allies? What is the plan when hardworking Americans are 
feeling the consequences of a trade war with China? What is the 
plan when China is able to weather the tariffs longer than 
Americans can absorb in those consequences?
    China put together a comprehensive plan a long time ago for 
how it is going to undermine U.S. business aggressively and 
strategically and how it is going to invest in countries around 
the globe including here in the U.S. And while it manipulates 
the rules, it does so as the game goes on. The Trump 
administration should not be pursuing one-dimensional trade 
wars with China. If we are going to protect our own economic 
and national security interests that are so vital to the well-
being and success of American families across this country, we 
have to do so with a coalition.
    So I look forward to hearing from the witnesses today 
because it is critical that we think beyond this approach to 
also consider the range of options the U.S. can employ to level 
out the playing field and better protect U.S. interests in 
light of China's unfair economic tactics.
    And I yield back, Mr. Chairman.
    Mr. Poe. I thank the gentleman from Massachusetts. I 
recognize the chairman Ted Yoho from Florida, chairman of the 
Asia and Pacific Subcommittee, for his opening remarks.
    Mr. Chairman?
    Mr. Yoho. I would like to thank Chairman Poe, Ranking 
Members Sherman and Keating, and all the members of the 
subcommittees for coming together to hold this joint hearing. 
Ensuring that the United States can compete fairly with China 
is one of the most important tasks in our shared jurisdiction 
and it is good that we have come together today to give this 
challenge the attention it deserves.
    After years of growing concerns and months of heated 
rhetoric, the tariffs unleashed on China on Friday marked a 
definitive turning point in the U.S.-China trade relationships 
from decades of failed attempts at constructive engagement to 
coercion and confrontation on both sides. While the same can't 
be said for other areas of the budding global fight over trade, 
when it comes to U.S.-China trade many agree that the status 
quo can no longer be held.
    The problem has been diagnosed correctly. China has crafted 
industrial policies designed to benefit them at other 
countries' expense instead of providing mutual benefit. Trade 
is not a zero sum game, but that is the approach that China 
often takes. Beijing has implemented these policies through 
trade and investment tactics designed to leach the benefits of 
the global trading system without accepting its obligations.
    This committee has played a role in highlighting this 
threat. In one of the first hearings I convened as chair of the 
Asia Pacific Subcommittee, Dr. Atkinson summarized the 
challenge before us, testifying that rather than reform China 
has doubled down on its unfair mercantilist strategies and is 
now seeking global dominance in a wide array of advanced 
industries that are key to U.S. economic and national security. 
The threat is no longer a matter of debate but an accepted 
fact.
    Our hearing today turns on one of the only remaining areas 
of disagreement, which tools should be used in response. The 
imbalance in U.S.-China trade is about much more than the trade 
deficit. The deficit was caused by a combination of market 
forces and unfair practices in the past and present. The United 
States and many other nations have been cheated for too long.
    But now the biggest threat from China's predatory trade and 
investment policy concerns the future. China's only response to 
U.S. concerns has been an offer to buy more U.S. goods. We 
should speak plainly. This is a ploy and a trap in an attempt 
to trick the U.S. into claiming an easy but ultimately false 
victory. A brief reduction in the trade deficit will do nothing 
to solve the main challenges of the trade relationship. It 
won't reduce long-term threat to the U.S. competitiveness in 
advanced technologies. It won't reduce market access 
restrictions. And it won't stop forced technology transfer or 
blatant IP theft.
    Xi Jinping and his cronies have made clear that they do not 
intend to make any good-faith efforts to address these valid 
concerns. Instead, they have decided to punish innocent U.S. 
citizens and workers. Whether or not they are the right tool 
for the job, U.S. tariffs are based on longstanding wrongdoing 
from the Chinese side. China's tariffs are pure retaliation 
designed to do nothing more than inflict pain.
    Because Xi in China refused to do the right thing, that is, 
compete fairly or begin to offer real structural changes in 
their negotiations with the U.S., it appears that we will be 
forced to use coercive measures which we don't want to do. 
Targeted tariffs may well have a place in the suite of these 
coercive measures, but tariffs alone won't counter Chinese 
industrial policies, and untargeted arbitrary tariffs may well 
end up being counterproductive and harmful to Americans.
    China recently placed $34 billion worth of tariffs on U.S. 
ag products that will hit soybean, beef, pork, and dairy 
particularly hard. It is likely more will follow. A complete 
response will require more, probably a comprehensive 
combination of targeted economic sanctions on bad actors such 
as the export ban on ZTE and maybe Huawei that Congress is 
seeking to enforce through an NDAA provision, investment and 
export restrictions, and upgraded protections for U.S. 
intellectual property and innovation.
    It is critical for the United States to address the full 
scope of China's predatory trade and investment policies and 
this hearing will help us make sure that the U.S. response does 
not leave any critical tool by the wayside. I thank the 
chairman for having this timely meeting and I yield back.
    [The prepared statement of Mr. Yoho follows:]
    
    
    
    
                              ----------                              

    Mr. Poe. I thank the gentleman from Florida. The Chair 
recognizes Ranking Member Brad Sherman from California for his 
5-minute opening statement.
    Mr. Sherman. Before I get tagged with being anti-China, I 
will remind the subcommittee that I have been the least hawkish 
member of the committee on issues of maritime items in the 
South China Sea.
    Now let's look at our trade deficit with China. Some $375 
billion in goods, an 8 percent increase over what it was in 
2016, a 450 percent increase over what it was 18 years ago when 
we unfortunately granted it most favored nation status. That is 
right. The trade deficit has grown $28 billion in the first 
year of this administration.
    Back in May 2000 when I voted against most favored nation 
status for China, I said that the agreement was going to have a 
terrible impact on American working families and on the balance 
of trade. It turns out, for once, I was right. I also said we 
needed an agreement that set targets for reducing the trade 
deficit. We didn't get them. We are now told that this is 
Trump's trade war. No, China declared war, trade war, on the 
United States 18 years ago.
    And before Democrats get carried away with the desire to 
repudiate our position, remember that 65 percent of Democrats 
voted no on MFN for China. We should not abandon that position 
just because some Republicans or the White House have embraced 
it. And I would point out that we should withdraw MFN--that in 
2010, I introduced the Emergency China Trade Act which revoked 
MFN for China with 6 months' lead time. It directed the 
President to come back to us with a new trade agreement that 
would reduce the trade imbalance to zero over a 4-year period.
    Compared to that bill, Trump's efforts on China are timid, 
weak, haphazard, and unplanned. And while Wall Street pays 
economists to tell us that the trade deficit isn't a problem, 
in fact we have lost 2 million American jobs. That is opioid. 
That is alcohol abuse. That is suicide. That is abandoned 
counties and small towns. And that is the election of Donald 
Trump as President of the United States.
    Those are the harms of our trade policy, a policy in which 
China is allowed to have a 25 percent tariff on American cars 
going into China while we have only a 2\1/2\ percent tariff on 
Chinese cars coming into the United States. No wonder Tesla 
feels that it needs to open up a factory in China.
    And now, as the latest insult to the American people and 
attack on American workers is this new social score detailed in 
the Foreign Policy magazine. I would like to enter it into the 
record.
    Mr. Poe. Without objection, so ordered.
    Mr. Sherman. China is going to give every one of its 
citizens a social score. Bad social score you don't get a 
passport. Bad social score you don't get a loan. Bad social 
score, a host of other things can be taken away from you. There 
will also be a social score for businesses, and lo to be a 
business with a bad social score. What does it take to get a 
good social score? You have to buy Chinese products.
    So they are literally intimidating their citizens into 
increasing the trade deficit with the United States and the 
devastation that that causes, not to mention their theft of 
technology and their demand for coproduction agreements. The 
WTO rules are not well designed to deal with a country that has 
a host of ways to increase the trade deficit with the United 
States that are outside the WTO's purview. Whether it be the 
social score, whether it be coproduction agreements, whether it 
be theft of intellectual property, whether it be the fact that 
the Chinese Government doesn't need to pass a regulation or law 
which the WTO might look at, when they actually control the 
boards of the major companies that might otherwise import 
American machinery.
    So, all of the decisions, major economic decisions in 
China, are government decisions. The WTO doesn't deal with that 
and the trade deficit increases, as does the harm to America. 
And I haven't even had time to talk about how they repress 
workers' rights in order to suppress labor costs and to 
manipulate the currency. And I would need another 5 minutes, 
Mr. Chairman, to review all the ways in which we do not have a 
fair trading system with China. I yield back.
    Mr. Poe. The gentleman yields. The Chair will not grant you 
an extra 5 minutes to give your opinion. The Chair recognizes 
other members for their opening statement. Each member may have 
up to 1 minute.
    Mr. Rohrabacher from California?
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. It is a 
little disconcerting to hear our President be called weak and 
when he is trying to do something that no other President has 
tried to do, especially Bill Clinton who was President when you 
voted for WTO and I was against it. Or did you oppose your 
President?
    Mr. Sherman. No, I didn't. I wish you would familiarize 
yourself with my record.
    Mr. Rohrabacher. Oh, I am sorry. You didn't oppose your 
President then, or you did?
    Mr. Sherman. On everything affecting China trade I have 
opposed all administrations.
    Mr. Rohrabacher. And also let us note that was 2000. I only 
have 1 minute here. So that was 2000, it was Clinton who gave 
us that free trade. And did Obama do anything for the last 8 
years? Nothing like this President is doing. This President has 
been getting right in their face and he is being aggressive on 
the issue of everything you just brought up, but the fact the 
guys on your party never brought it up.
    So with those things said, let me note that China is----
    Mr. Sherman. Will the gentleman yield?
    Mr. Rohrabacher. I only got one--I have less than--I am out 
of time right now. If you will grant me 5 more seconds because 
of the interruption, China is a country of 1 million oligarchs, 
no freedom, and they are corrupting the world. And those 
million oligarchs who control that country with an iron fist 
mean to do us harm and I am glad we have a President now who is 
confronting that, unlike Clinton and Obama.
    Mr. Poe. The gentleman's time has expired.
    Mr. Rohrabacher. Thank you.
    Mr. Poe. I suspect this will be a lively hearing.
    Mr. Keating. The witnesses haven't even started.
    Mr. Poe. Yes and you haven't got your turn yet.
    Mr. Chabot recognized for 1 minute, the gentleman from 
Ohio.
    Mr. Chabot. Thank you. This committee, the Foreign Affairs 
Committee, has been very engaged in responding to China's 
nefarious activities and the more we examine the worse it 
really looks. And over in the Small Business Committee, which I 
happen to chair, we have examined Chinese cybersecurity threats 
and probed the problems created by firms like the Chinese 
telecom giant ZTE.
    Whether we discuss intellectual property rights, the so-
called Belt and Road Initiative, technology transfers, trade, 
or the Made in China 2025 plan, it is clear that Beijing 
continues to enjoy the blessings of the rules-based 
international order while routinely flouting its rules to gain 
a competitive advantage. This is deeply unfair and also a 
direct threat to our national security.
    It has also come to my attention that Intel Corporation is 
in talks to transfer advanced semiconductor technology to 
Tsinghua Unigroup, which is a subsidiary of Tsinghua Holdings, 
which itself is a wholly-owned subsidiary of Tsinghua 
University and a public university with, oh by the way, direct 
ties to the Chinese Government.
    I have the NDAA conference so I will be in and out here, 
but if the witnesses are able to address it I would love to 
hear what they have to say. I yield back.
    Mr. Poe. The gentleman yields back. The Chair recognizes 
the gentleman from Virginia, Mr. Garrett.
    Mr. Garrett. Thank you, Mr. Chairman. I want to associate 
myself with the bulk of the remarks of my colleague from 
California, Mr. Sherman, which I know is surprising to some 
people. But I have to say that candidly, while certainly the 
expected partisan barbs are in there and probably they would 
have been had the shoe been on the other foot and I was 
speaking to the other administration, that I think he is right 
on the bulk of this and I think that Brad Sherman also gave an 
incredibly insightful analysis of the Iran nuclear deal, the 
JCPOA 5, 6 years ago to a mosque or to a synagogue in 
California.
    We need to stop with the partisan rankle for just long 
enough to recognize that our job is to represent our 
constituents in our respective districts but also the United 
States of America, collectively, through our responsibility as 
members of a Federal Government.
    Now, ironically, I met with Virginia farmers before this 
committee hearing and the farmers are taking it on the chin as 
it relates to this whoever-you-want-to-blame-it-on trade war 
that has been going on for generations by virtue of the fact 
that that is one of the few areas where in fact we have a trade 
surplus.
    But the reality as stated by Mr. Sherman and candidly 
echoed by the chairman and others is there is a 10 to 1 
disparity as it relates to automotive tariffs, there is a 5 to 
1 disparity as it relates to which direction the money is going 
by virtue of the trade relationship between us and China, and 
while I am reflexively anti-tariff when that is the tool that 
has been used to bludgeon our workers for years, it seems the 
most likely remedy might be found by virtue of having used such 
tools ourselves.
    So let's try to work across the aisle together and find 
commonality and not ways to argue and get this right because it 
matters to the people who we represent.
    Thank you Mr. Chairman.
    Mr. Poe. And the Chair finally recognizes the gentlelady 
from Missouri, Mrs. Wagner.
    Mrs. Wagner. Thank you, Chairman Poe and Chairman Yoho, for 
organizing this hearing. And I thank our witnesses for being 
here.
    I am deeply concerned about the effect China's retaliatory 
tariffs will have on farmers and ranchers and pork producers 
and dairy producers and consumers all over my home state of 
Missouri. Missouri is a trading state. Exports support 88,000 
Missouri jobs and one out of every three rows of crops is grown 
to export. China's 25 percent tariff on American soybeans will 
hit Missouri hard. Our local newspapers and press are already 
reporting that soybean farmers expect to sell their crops at a 
loss.
    It is abundantly clear that these tariffs will hurt good, 
hardworking men and women and their families and I worry that 
the escalating trade war will create winners and losers in 
communities across Missouri. While I commend the President for 
standing up to China's bullying trade practices, we need to 
keep these things in mind as we go forward. I welcome your 
thoughts on these concerns and I yield back.
    Mr. Poe. The gentlelady yields back. I will introduce each 
witness and then give them time for opening statements. Each 
witness's written remarks will be made part of the record.
    Dr. Derek Scissors is a resident scholar at the American 
Enterprise Institute. Previously, Dr. Scissors was a senior 
research fellow in the Asian Studies Center at the Heritage 
Foundation and adjunct professor of economics at George 
Washington University.
    Dr. Robert Atkinson is the president of the Information 
Technology and Innovation Foundation. Previously he served as 
vice president of the Progressive Policy Institute.
    And Mr. William Reinsch holds the Scholl chair in 
international business at the Center for Strategic and 
International Studies. He is a senior advisor at Kelley, Drye 
and Warren, LLP, and previously he served for 15 years as 
president of the National Foreign Trade Council.
    Each of you will have 5 minutes. When you see the red light 
come on in front of you, remember, stop talking.
    And Dr. Scissors, we will start with you.

STATEMENT OF DEREK SCISSORS, PH.D., RESIDENT SCHOLAR, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Scissors. Thank you, Mr. Chairman. I apologize in 
advance for being more boring than the committee has been to 
now. It is a high bar for me to try to reach.
    My written testimony is about Chinese investment and 
construction in the U.S. and around the world. Last night we 
got the first set of $200 billion 10 percent tariff list which, 
you know, we will be talking about for the next few months. I 
welcome any questions along those lines however you see fit, 
but my time now is going to be spent on the Chinese economic 
picture as it pertains to our relationship with them going 
forward.
    The first observation I want to make is that people talk 
about China as still growing rapidly, basically because a 
dictatorship in charge of the country says it is growing 
rapidly, and I would urge you to be suspicious of that. China 
is in fact an aging and highly indebted society at the moment. 
To keep people happy when they will probably never become rich, 
the party is cleaning up air, land, and water. They are making 
some progress in that effort. They will pay good money and for 
decades to come for environmental technology and for food 
imports.
    So there is an opportunity and we need to remember that as 
the Representative from Missouri just reminded us. There is 
less of a problem in one sense that for about 35 years the 
Chinese Communist Party has emphasized jobs and it did so by 
subsidizing its production to draw jobs from everywhere else. 
It was predatory economic action for the sake of jobs in China.
    Now the labor force is shrinking and aging and the Chinese 
will be willing to import more and export less. Unfortunately, 
they will only do that up to a point and the reason is they 
have a very serious debt problem. I would say on a bipartisan 
statement that our debt performance from 2009 to 2017 was bad 
and China's was much worse. China keeps its domestic finances, 
and this can be very technical and dull, but it keeps its 
domestic finances walled off from its international finances 
because if it doesn't money will pour out of the country even 
faster than it is now.
    Getting back to my first point about people who think China 
is a powerhouse and is growing really rapidly, then why is 
money leaving the country on a net basis every year? So because 
of this risk the Chinese need money from a trade surplus and 
this is something that many of my colleagues don't recognize. 
Chinese say they are not trying to run a trade surplus. That is 
not true. They need the foreign exchange from a trade surplus 
to stabilize their balance of payments and without it they have 
a possibility of a financial crisis of a certain kind. 
Therefore, they are going to continue to run a trade surplus 
and we are going to continue to have some of the problems that 
we have with them now.
    The worst situation with regard to China's economic future 
concerns innovation. Growth is not going to come from China's 
damaged land. It is not going to come from an aging population. 
It is not going to come from their debt-ridden financial 
system. It has to come from innovation. The party recognizes 
this, but the party also really doesn't like competition as 
several members have already stated. And in my opinion, without 
competition you are not going to get much innovation.
    So what do we get from that? We are going to get the 
Chinese trying to buy technology to upgrade their innovative 
capabilities and steal it whenever they can't buy it. I used to 
think Chinese IP practices would get better over time, but 
their economic mismanagement means I think they have more 
incentive to steal technology and their practices are going to 
get worse.
    You know, to qualify this a little bit, China is not taking 
over the world. The Belt and Road is something I know a fair 
amount about, is far smaller than its hype but it has been 
harming the U.S. The main harm used to be subsidies to take 
American jobs. I think that will lessen over time. But the 
coercing and stealing of American intellectual property, which 
is the core of our comparative advantage, the core of what we 
get benefits for in trade, is going to get worse because the 
Chinese need that innovation quite desperately.
    And I am going to make a statement which I wasn't going to 
bother because the U.S. responses are long overdue, it sounds 
very vague but here is a way to put it into context. I am 
pretty sure I sat in this room 6 years ago when Chairman Ros-
Lehtinen held a hearing on Chinese IP practices and we all 
agreed in a bipartisan fashion that we needed to respond to 
Chinese IP practices. And here we are 6 years later and we all 
agree again, but we haven't done anything that has worked.
    My own recommendation at the time and continues to be that 
we target Chinese companies specifically who have gained from 
coerced or stolen IP and we target them internationally. Not 
just banning them from U.S. business but applying global 
financial sanctions. My concern with tariffs is that it targets 
the guilty and the innocent together so you have no reason to 
stop stealing. Go after the people who really commit the crimes 
and go after them more strongly than perhaps a 10 percent 
tariff, which I don't think is particularly effective in light 
of Chinese subsidies.
    There are many other possible steps we could take. I am 
happy to talk about them, but I am actually going to stop here 
and yield back my last 15 seconds.
    [The prepared statement of Mr. Scissors follows:]
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    Mr. Poe. Thank you, Dr. Scissors.
    Dr. Atkinson, recognized for 5 minutes.

STATEMENT OF ROBERT D. ATKINSON, PH.D., PRESIDENT, INFORMATION 
              TECHNOLOGY AND INNOVATION FOUNDATION

    Mr. Atkinson. Thank you, Chairman Poe and Ranking Member 
Keating. I will take Derek's 15 seconds. I appreciate you 
inviting me here today.
    I think it is important to recognize that the problem with 
China, in our view, is not so much the trade deficit, it is 
that they have a contra-strategy to seek and attain global 
technology dominance in a wide array of technology-advanced 
industries that the U.S. specializes in. And unchallenged this 
could and potentially is resulting in the loss of U.S. 
competitive advantage in a wide array of industries that we 
enjoy right now that provide high wages to American workers.
    Technology acquisition is at the center of China's 
strategy. They lag behind us in most industries and absent 
cheating, as the chairman said, it is going to take them 20, 30 
years to come close to catching up. They understand that and so 
their entire strategy, the first part of it, is premised on 
getting technology from foreigners by hook or by crook.
    There is a recent study by the National Bureau of Economic 
Research looking at joint ventures in China. This is one key 
tactic they have. Between '98 and 2012 there were over 4,000 
U.S. joint ventures in China. The study found that not only did 
the Chinese JV partner gain substantial technological 
capabilities, but so did other Chinese firms in the same 
industry which isn't a surprise because that is exactly what 
the Chinese want with joint ventures.
    There has been a lot of talk about the fact that we don't 
have a right to force China to roll back its 2025 ambitions. I 
disagree with that--I agree with that. We don't have a right to 
ask them to not advance technologically. Every country has that 
right. What we do have a right to insist upon is that they do 
it through fair practices, and right now the bulk of their 
practices are unfair.
    I would argue though that success is an incredibly daunting 
task. They have several weapons that they are able to use that 
we don't have. One of them is they can punish and they will 
punish U.S. corporations with impunity. They know how to do 
that. There is no rule of law. They can retaliate against U.S. 
firms in pretty much any way they want to do. And secondly, it 
has been raised before, the WTO provides little redress so much 
of what China is doing is in the gray area of the WTO or even 
in areas that the WTO protocols don't cover.
    So what do we do? Number one, I agree with the Trump 
administration. We have to focus on results-oriented trade. 
This is not about winning a case or not winning a case. This is 
about insisting upon a wholesale set of practices that they 
change, which to me have to be around forced technology 
transfer and IP theft, and then a significant reduction of 
their industrial subsidy regime.
    So what do we do, how do we do that? I think number one, 
the best way we are going to be able to do that is we need a 
coalition of the willing. We have to have our allies at our 
side because they are hurt by China as well--the Japanese, the 
South Koreans, the Europeans in particular, and the Canadians. 
Not having those allies at our side makes this a much tougher 
fight.
    Secondly, even if we don't win, in other words winning 
meaning rolling back their practices, getting the Chinese to 
admit and roll back their practices, even if we can't do that 
we need to put roadblocks in their way. One roadblock would be 
obviously passing FIRRMA, having the President sign it, and 
really taking a hard line on restricting Chinese investment in 
the United States particularly in areas around innovation. 
Second would be enacting a regime where we treat their 
technology licenses in the U.S. the way we treat theirs.
    We should limit science and technology cooperation with 
China. It is not clear to me why we continue to cooperate. Dr. 
Scissors mentioned a few things going after specific Chinese 
firms that have benefited. So, for example, we should prohibit 
Chinese firms that have stolen intellectual property from using 
our banking and financial system. We should enact an antitrust 
regime that is much tougher on the Chinese. So, for example, 
U.S. DOJ does not take into account the fact that when state-
owned enterprises merge that is not covered by U.S. antitrust 
law, whereas private sector mergers in other countries do that.
    Lastly, we need on this, we need to, I would argue, set up 
a new regime in the antitrust bureau to focus on foreign 
government-led enabled antitrust violations. Subsidies, all of 
these other practices, these would be, if the private sector 
were doing them, antitrust violations. We should treat Chinese 
firms that benefit from these as antitrust violators.
    And lastly, we shouldn't let China gain the moral high 
ground. That has been one of the most disconcerting things I 
have seen when you have President Xi claim and have the media 
agree that he is the defender of free trade when there is 
nothing more ludicrous under the sun than that statement. We 
need to be seen as the defenders of global free trade and we 
can't let China have the high ground. I am sorry I don't 
remember which member said this, but we didn't start the war, 
the Chinese started the war. Mr. Sherman said that. We are just 
now finally fighting back. So thank you and I look forward to 
your questions.
    [The prepared statement of Mr. Atkinson follows:]
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    Mr. Poe. Thank you, Dr. Atkinson.
    Mr. Reinsch?

    STATEMENT OF MR. WILLIAM ALAN REINSCH, SCHOLL CHAIR IN 
INTERNATIONAL BUSINESS, CENTER FOR STRATEGIC AND INTERNATIONAL 
                            STUDIES

    Mr. Reinsch. Thank you very much. It is a pleasure to be 
here. China's economic strategy is well known. It has been 
discussed here at length. Rather than repeat that I want to 
spend my time discussing what the United States might do about 
it.
    Mr. Poe. Could you pull the mike a little closer there?
    Mr. Reinsch. Sure. How is that? Better?
    And I begin with a fundamental principle. If a country has 
an adversary and wants to stay ahead of them there are only two 
ways--hold him back or run faster. Both strategies have their 
limitations which is why the best approach is to pursue both. 
Let me take them one at a time.
    Holding the adversary back means denying him the means of 
gaining advantage, if possible, while trying to leverage better 
behavior. This has been the focus of the administration's 
efforts thus far. We are attempting to deny China advantage 
through investment controls and export controls, both designed 
to impede the flow of critical technology beyond our borders. 
Congress has recognized that the current CFIUS process does not 
subject enough transactions to review and has moved to expand 
its reach. Both versions now in conference are thoughtful and 
carefully drafted. The administration has expressed its support 
and I think its enactment would be a positive step.
    Similarly, your committee has reported and the House has 
passed legislation to reauthorize the Export Administration 
Act. This is long overdue as you know and its enactment would 
also be useful step. I caution the committee, however, against 
a too broad expansion of controls. Maintaining control over the 
crown jewels of our economy is important. Attempting to re-
control technologies that have already been released are not 
critical and are available from multiple sources would 
accomplish nothing and would do serious harm to our exporters.
    In addition to investment review and export licensing, 
devoting more resources to compliance and enforcement is 
critical. The problem is not with large established companies 
which know the rules. I am worried about the small start-up, 
the proverbial two guys in the garage with a brilliant idea. 
When a savvy Chinese investor offers them $100 million for 
their company they may not know or care that such a transaction 
would require CFIUS review or that any technology transfer 
pursuant to it could require an export license. The government 
does not currently do an adequate job of finding and monitoring 
those situations and making sure innovators know what their 
responsibilities are and that is something I think the 
committee could constructively work on.
    Leveraging better behavior is more complicated. As the 
President has said, the Chinese are doing what is good for 
them. Persuading them to do what is not good for them is a 
heavy lift. I think there are some areas where agreement ought 
to be possible and my statement cites a couple of them as an 
example.
    The most difficult problem to address is Made In China 
2025. Here, we are asking China to restructure its economy into 
a market-based system and effectively abandon its technology 
competitiveness goals. Doing that would reduce the Party's 
control of the economy and the society, which is the last thing 
they will be willing to do. Many of the technologies at issue 
involve aspects of the digital economy. For China these are not 
trade issues. They are national security and public control 
issues and they are not susceptible to resolution in a trade 
negotiation.
    The President is attempting to force changes through 
tariffs. That is not likely to succeed for the reason I have 
indicated. We are demanding that the Chinese do something that 
will imperil the Party's control and it will certainly produce 
a great deal of collateral damage in its wake. The better 
approach is through building coalitions and I endorse what Rob 
said, I won't repeat that ground.
    I would also suggest that a more productive course would 
also be to recognize the long-term battleground with China is 
not in China but is in the United States and in third countries 
where the playing field is level. We can deny them advantages 
here and in the process give a boost to our own manufacturers 
and innovators.
    In third countries we cannot only compete with the Chinese 
on more equal terms, we can also develop networks of rules and 
standards that work to the advantage of Western economies. That 
is what TPP was about. That is what TTIP is about, building 
trading structures based on Western rule of law principles and 
standards to which the Chinese will ultimately have to conform 
if they want to access the very large market structures and 
global supply chains that we are creating through those 
agreements.
    Beyond trade agreements there are some time-tested things 
the United States can do: Let the Export-Import Bank function 
as it was intended; use trade missions to promote American 
products; aggressively defend American commercial interests in 
third countries. If there is one data point I hope you remember 
it is that 95 percent of the world's consumers are outside the 
United States. Maintaining a competitive advantage over China 
inevitably means beating them in third countries. If we cannot 
do that we marginalize ourselves and yield leadership to China.
    Finally, a few words about running faster. It is not my 
primary topic but it is more important. The reality is that 
holding the other guy back doesn't work all that well and I 
speak from somebody who spent the Clinton administration trying 
to do that. There are simply too many ways to get around the 
steps we take. There are inevitable limitations also on what we 
can do to control somebody else's economic policy.
    What we can control is our own economic policy and if we do 
it well we can surmount the Chinese challenge. In today's 
totally globally-integrated economy that means more than pro-
growth macro policies and more than job creation. I have 
suggested three things in the past which I will just list: 
Training our workforce to meet the demands of the 21st century 
economy; giving our companies incentives to stay here; and 
promoting innovation. We are very good at promoting innovation. 
We have a demonstrated record since the Lincoln administration 
of targeting government resources in sectors that will define 
global leadership in the future. That is what the Chinese 
intend to do. We should remember that we thought of it first, 
we can do it better, and we can do it without the massive 
subsidies, the WTO-illegal subsidies that they plan to do, but 
with expanded support for basic research, encouragement for our 
private innovators, and immigration policies that encourage 
smart people to study and stay here. Those are debatable.
    Rob has made some other suggestions which I endorse also. 
But the principle of running faster remains fundamental. Thank 
you.
    [The prepared statement of Mr. Reinsch follows:]
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    Mr. Poe. I thank the gentleman. The Chair will recognize 
the gentleman from Florida, Mr. Yoho, for his opening 
statements in the--started to say court. But the Chair will 
reserve its 5 minutes.
    Mr. Yoho. I don't want to see you in court.
    Mr. Poe. Nobody did.
    Mr. Yoho.
    Mr. Yoho. Thank you, sir. China prefers to play a one-sided 
trade agreement and the U.S. has been tolerant or worse, 
negligent, as the trade inequity has built up to $350 billion 
to $400 billion, somewhere in there. But China wants a zero sum 
game in their favor and it is time for that adjustment. And 
this is not a trade war recently started by President Trump. 
This has been going on. President Trump has been bold enough to 
say enough is enough.
    The past seven Presidents have ignored the situation of 
trade with China and that is how you accumulate a trade deficit 
that large, and that is not talking about the intellectual 
property theft. China cries foul when we go to intervene, well 
too bad. That is welcome to capitalism. They want to maintain 
their Communist form of government with its historically 
terrible outcome, but realize, they realize they could not 
compete in the world economy.
    So they coyishly disguise a market economy, capitalism tied 
with socialism with Chinese characteristics that still is 
nothing more than a Communist pig painted with lipstick. They 
want the benefits of capitalism, which incidentally is the 
antithesis of Communism, because they like the money, but they 
want to hide behind it--and I think this is just mind-boggling.
    They want to hide behind a developing country status. They 
want developing market status yet have a space program; nuclear 
weapons; invested between $4 billion to $10 billion in their 
One Belt One Road Initiative around the globe yet they claim 
they are just getting by and need to maintain developing 
country status. Sorry, President or Emperor Xi, you can't have 
it both ways.
    President Trump is the first American President to call the 
trade deficit out not with rhetoric but with action and it is 
time we adjust the trade imbalance and it is high time China 
acts like a responsible trading partner. Stop cheating-
stealing-lying and start honoring the contract, the rule of 
law, and how about acting honorably?
    So with that rant I want to ask and I read all of your 
testimonies ahead, how should we consider restricting access to 
sensitive U.S. technology in these different scenarios? Dr. 
Atkinson, you were talking about this. And I want to talk, Mr. 
Reinsch, talk to you about the garage, you know, because what 
do you do to prevent people from letting that go through if we 
can't go through CFIUS, if it gets bypassed? So how do we 
prevent the technological transfers?
    Mr. Atkinson. Number one, there is a wide variety of actors 
that use that. One of them is cybersecurity. So, you know, 
doing a better job of making sure that American companies have 
better cybersecurity is one way to do that. We testified in the 
Senate recently on how, frankly, poorly we do with small 
business cybersecurity. You look at what the SBA is doing in 
that space, it is not very good, frankly.
    Secondly, with the passage of FIRRMA we would hope that 
there would be a big ramp-up on enforcement. One of the ways, 
for example, right now the Chinese have set up a system of 
technology accelerators so they have what is called an 
accelerator or incubator high tech little platform in Silicon 
Valley and it is funded essentially by the Beijing provincial 
government. They have located it in Silicon Valley and my 
belief is it is a vector of which they can take knowledge, 
particularly these young entrepreneurs who need a little bit of 
capital. We should just not allow that. There is a whole set of 
things we could do around venture capital, around small-scale 
investments, and I think FIRRMA is the vehicle by which we 
could do that.
    Mr. Yoho. So you think the CFIUS review is strong enough 
for that?
    Mr. Atkinson. I do think it is strong enough for that.
    Mr. Yoho. All right. What about when we get into biomedical 
research and the ag products? I have seen university professors 
from the university I graduated from talking about doing a 
sabbatical in China and they are going to pay them four to five 
times what they are making here. And I asked them what they are 
working on, and they said we are going to take our research and 
go over there, and I said I don't think that is a good idea.
    And so how do we block that? Because I brought that up in 
an export control hearing that we had and they said, you know, 
CFIUS doesn't really address that. Do any of you want to 
comment how we can protect that intellectual property?
    Mr. Reinsch. I can talk about that, Mr. Yoho. CFIUS does 
not, the export control system does at least in theory. If they 
want to do that they need an export license for the technology 
they are going to transfer if that technology is controlled.
    Mr. Yoho. Does that apply to our universities?
    Mr. Reinsch. Yes. Yes. Although I will tell you and I don't 
know if it is in my bio, I was the undersecretary that ran this 
particular function in the '90s. Universities are the worst, 
frankly. First of all, every professor is his own empire and 
trying to create a central administration--we impose some 
discipline it is like herding cats. It is very difficult. And 
second, there is an attitudinal issue, frankly. For them this 
is not technology transfer, this is research.
    Mr. Yoho. Research.
    Mr. Reinsch. And you need to get them to think about it 
differently. They are getting better. I visited with some 
universities. I will tell you, nothing----
    Mr. Yoho. I am going to have to cut you off because I am 
out of time.
    Mr. Reinsch. Well, I will just say nothing gets them more 
focused on this faster than the Commerce Department paying them 
a visit.
    Mr. Yoho. Thank you.
    Mr. Poe. The Chair recognizes the gentleman from 
Massachusetts, Mr. Keating.
    Mr. Keating. Thank you, Mr. Chairman. Today's actions by 
the President at NATO certainly don't make the prospects of 
this look great, but our job here in Congress and this 
committee is to look at directions that we should take on our 
own. That being said, I am a believer that one of the greatest 
things we can do, and I think it falls into the testimony we 
heard from our witnesses, is to really keep moving ahead, 
albeit against some tough odds now, on a TTIP type of 
agreement.
    I think an alliance and a free trade agreement with the 
European Union would be our strongest move. It would help us 
here at home. It would help our hand globally and it would 
particularly help our hand with China. I can't think of many 
other things that could have a greater effect.
    So could any of our witnesses comment on that? Mr. Reinsch?
    Mr. Reinsch. I would like to. I couldn't agree with you 
more. I mentioned this. The point of doing that is to create 
basically the largest middle class consumer market in the world 
that would set up a system of health, safety, environmental 
inspections and rules. If you want to access that market you 
have to adhere to those. That will force the outliers which 
begins with China, although India would be probably another one 
to conform to those rules, procedures, and practices.
    And that was the point of doing it in the first place. If 
we can get all of us working together we achieve exactly the 
result you are talking about, I think.
    Mr. Scissors. We are not going to get a TTIP in this.
    Mr. Keating. That is not what I asked you.
    Mr. Scissors. I know. But I have a way to get closer, which 
is feasible, which is a U.S.-U.K. FTA. That is something that 
the administration does want to do. It is not difficult to 
write.
    Mr. Keating. If I could, because my time is precious.
    Mr. Scissors. Sure.
    Mr. Keating. But 80 percent of our trade partners is the 
rest of the EU.
    Mr. Scissors. No, I understand, but.
    Mr. Keating. We can't ignore that. And the damage we would 
do with what you are proposing to the rest of our allies would 
make things worse, I think, frankly.
    Mr. Scissors. Well, a U.S.-U.K. FTA allows us to put down 
text which can serve as the basis for an agreement.
    Mr. Keating. We have to wait--again I am going to 
interrupt.
    Mr. Scissors. Sure.
    Mr. Keating. Because it is not the question I asked. But 
thank you for your response.
    Dr. Atkinson, did you go on this?
    Mr. Atkinson. I fully agree with that. I think we should 
have had a TTIP. I think we should do a TTIP. I think we should 
have had a TTP, although I would have made it, frankly, 
stronger. I would have maybe kept out a couple of countries and 
made it stronger. But I fully agree that we need those sorts of 
trade agreements if we are going to move forward.
    And the broader point is we have to get our allies engaged 
here. I have spoken with officials from Europe, the European 
Commission, from METI in Japan, and Korea. They are as 
concerned as we are about what is going on in China.
    Mr. Keating. Yes. And I must say this for what it is worth, 
things might have changed in the last few months but I was 
quite optimistic about the prospects of support in Congress for 
TTIP at that particular time moving forward much more than TTP.
    Here is a question I just have pondered. The effect of 
artificial intelligence moving forward is going to be quite 
dramatic on all our lives. It is going to result in increasing 
dependence on that and the increasing technological 
advancements. It is going to result in great job displacement. 
It is going to change the nature of competition in the 
workforce.
    Can you speculate on how China and the U.S. might react 
given the fact that this is just going to be, I think, 
exponentially advancing?
    Mr. Atkinson. This is an area we have studied quite 
extensively. I think I would be a little more skeptical, I 
think, of the big job displacements. We have done a lot of work 
on that. I did a report for the G7 Ministerial recently. I 
agree it will have job displacement, but I think overall it is 
going to be a very positive thing for the U.S. economy 
particularly as we need productivity going forward.
    At least when you look at the studies right now it appears 
that China is behind the U.S. in terms of AI. They invest less 
in R&D and their science and coding ability, if you will, 
computer science, is not as advanced as ours. But their rate of 
catch-up is faster than ours and they are putting an enormous 
amount of money in there from government. And so it is 
conceivable that the Chinese could match us in AI in 5 to 10 
years, I would argue.
    Mr. Keating. And you think that might level the playing 
field more?
    Mr. Atkinson. I do. Well, one other advantage the Chinese 
have by the way is AI, it helps if you have bigger data sets. A 
lot of machine learning is around data pools. They have 
unlimited data as a number of people mentioned. So they are 
able to use all that data and mine it very well so it is an 
advantage that they have.
    Mr. Keating. Quickly, I have little time. One other avenue 
the Chinese are moving into to capture our intellectual 
property is their joint activities with our academic 
institutions here too. I have a few seconds, but do you see 
that as a concern?
    Mr. Atkinson. I do. And I would add to what Bill said, I 
think we could, for example, have requirements within our 
science funding agencies like NSF and NIH and DOE that number 
one you have to report any joint projects with a country like 
China, and number two, put some limits on that.
    Mr. Keating. Thank you. I yield back.
    Mr. Poe. I thank the gentleman. The Chair recognizes itself 
for 5 minutes.
    The issue regarding China is a national security issue and 
it is also an economic issue, economic security, in my opinion. 
And I would like to focus on China as opposed to other 
countries in the world for trade because China cheats. They 
cheat a lot and it works. They steal everything they can from 
us.
    I would like to ask all three of you this question. So 
right now what should the United States do regarding holding 
back as the phrase was used, and what should we do--one thing 
to run faster, right now?
    And thank you, Dr. Scissors, because I remember that 6 
years ago that you were before us. I will start with you, Dr. 
Scissors, and go right down the row.
    Mr. Scissors. It was a great hearing. I almost wish I could 
just take what I said back then and repeat it. In terms of 
holding them back I am going to stick with what I said earlier. 
We have seen in the example of ZTE, which of course was done 
for security reasons, that we can hurt the Communist Party by 
targeting large state-owned enterprises. And I am not saying 
that IP is as important as North Korea or Iran sanctions. I am 
saying that we have a method now that works which is there are 
large Chinese state-owned enterprises, which matter to the 
Party, which have benefited from stolen IP and we know how to 
hurt them. We know how to hurt the Party and that is where I 
would go first. Obviously we want them to be guilty of 
something. We don't want to target companies that haven't done 
anything because that doesn't change their incentives.
    I would not--actually I disagree with pretty much everyone 
in the room on ally coordination. It is definitely a global 
problem but I want us to get our policy first. We need to lead 
on this. We could spend a lot of time talking with the 
Europeans and never get anywhere because that is pretty much 
usually what happens when you talk to the Europeans. I 
absolutely agree that it is a global problem, but first we have 
to decide what we are going to do.
    With regard to running faster, you know that I am not a 
U.S. economic expert. I would say that in the longer term and 
now too because our economy is doing very well, we can't keep 
borrowing money. That is not going to help U.S. economic 
security. I know it is the easy thing to do in the short term, 
but I brought up Chinese debt. Chinese debt is going to kill 
China. It is going to kill China's rise. We can stand it for 
longer because we are richer and because the dollar is the 
global reserve currency, but eventually it is going to get us 
too.
    Mr. Poe. Dr. Atkinson?
    Mr. Atkinson. ITIF issued a report recently, something in 
the title of an agenda for alliance-based confrontation. And in 
that report we listed 25 things, though I can only give you one 
of them and that would be an earlier comment about really using 
the Justice Department around tying what the Chinese are doing 
as antitrust violations and going after specific companies for 
doing that.
    Domestically, I would argue that--take this the right way. 
I would argue we need our own invented and made in America 2028 
and certainly not using heavy-handed things, but we need our 
own strategy and one of those would be a better research and 
development tax credit. We are now 27th least generous R&D tax 
credits in the world. We could beef that up and get more 
innovation in the U.S.
    Mr. Poe. Mr. Reinsch?
    Mr. Reinsch. On holding back, two things. I think you have 
an acceptable framework now via CFIUS/FIRRMA and the export 
control structure. If you enact bills that the House has 
passed, if you enact the FIRMMA bill I think you have done an 
important step forward that will address--I mean a lot of these 
horses are out of the barn. That will prevent more horses from 
getting out of the barn and I think it is an effective step 
forward.
    The other thing in that in the holding them back field is 
don't forget what I said about third markets. Our ZTE 
competitors, our companies that make the same stuff that is 
critical to our leadership in the telecommunications sector, 
they are going to live and die by what they do in third 
countries. They are not going to live or die by what they do in 
China or what they do in the United States. They are going to 
live and die by what they do in India, what they do in Europe, 
what they do in Brazil, what they do in the rest of the world. 
Helping them, listening to them and figuring out what they need 
and helping them, I think, in other situations is 
extraordinarily important.
    Running faster, I agree with Rob, it is a question of how 
do we help our people innovate. And as I, I didn't read this 
part of the statement but, you know, we have done this before. 
When I refer to the Lincoln administration, land grant 
colleges, the Homestead Act, we created the most effective, 
efficient world-class agriculture industry in the world and 
that was government devotion of resources and focusing of 
attention on it.
    We did the same thing with wireless communication. We did 
the same thing with aerospace. We did the same thing with the 
internet. There is no reason why we can't do that going forward 
with the next generation of technologies and stay ahead of the 
Chinese that way.
    Mr. Poe. And I thank all three of you. My time has expired. 
I recognize the gentleman from California, Mr. Sherman.
    Mr. Sherman. A few comments as to an R&D tax credit, that 
increases our deficit. I don't know any economists that are in 
favor of that. It will lead to innovation which then will be 
transferred to China if it is profitable for the company to do 
so. And we live in a world where we are so weak that we allow 
China to say you don't get access to our market unless you 
transfer the technology to us.
    So we are in a trade war with China. For 18 years we have 
ignored it. I give the President credit for not ignoring it. We 
are probably going to lose because all of China is on China's 
side and Wall Street is mostly on China's side as well. Because 
you can make profits by manufacturing something for 50 cents or 
even $1 an hour in China and sell it in the United States. That 
is a proven profit method.
    Paying American wages to create a product that you are 
going to sell in China is economically difficult. It is not a 
get-rich-quick scheme. And that assumes China would let you 
sell it in China, which they won't until you have a 
coproduction agreement which means you are not making it the 
United States anymore. Hence, even the innovation of Tesla, 
paid for in part by the U.S. R&D tax credit, will lead to a 
factory in China--because the weak United States bullied by a 
powerful Wall Street continues to this day to have a 2.5 
percent tax on Chinese cars coming here while they have a 25 
percent tax on our cars going there.
    So the one thing I disagree with in the President's policy 
is simultaneously trying to deal with the trade deficits we 
have with our allies. We should pick one at a time and China is 
the worst and most egregious. But aside from that one element, 
it is time for us to be bipartisan. Sixty-five percent of 
Democrats voted against MFN for China and now we have a 
Republican President with substantial support in the Republican 
Party saying that it was a mistake and also saying that when 
the United States makes a mistake and enters into a bad deal we 
should tear up the deal.
    So we should be, I think, revoking MFN for China, 6-month 
lead time, and have a chance for them to come to the table. But 
before we do that, we have to specify that if they retaliate 
against us for this bill we have to double tariffs on them. And 
if they seize American assets we have to seize Chinese assets 
here in the United States--including and especially their 
ownership of our intangible assets and bonds. So we could get 
tough. Wall Street won't let us and so we won't. And the 
balance of trade is worse today than it was even when Trump 
took office.
    But I want to talk about this social score. What is the 
appropriate American action for Chinese consumers and 
businesses being told that if they don't buy Chinese goods they 
could lose their passports and their credit? Should we impose 
an additional, in addition to everything else, 25 percent 
tariff on everything made in China, should we ignore it, or 
should we issue a press release and then ignore it?
    Dr. Atkinson?
    Mr. Atkinson. Well, first, a couple of things. The R&D 
credit actually does pay for itself after 15 years if CBO had a 
15-year budget window. And secondly, I was asked for one thing 
so I completely agree with you.
    Mr. Sherman. Well, you didn't disagree the technology's 
going to get transferred to China, but go ahead.
    Mr. Atkinson. Since I was only able to list one of those as 
opposed to the 40 that we have in our reports on what we----
    Mr. Sherman. I do have limited time. I asked you a question 
about the social score in China. Do you choose to answer that 
question or should I move on to another witness?
    Mr. Atkinson. I don't think the point, frankly, is the 
social score. I think the point is there is a set of Chinese 
behavior.
    Mr. Sherman. Okay, you don't want to answer the question. 
Does anyone else want to answer the question?
    Dr. Scissors?
    Mr. Scissors. The social score is another way of China 
subsidizing production at home, right, that is what it is. 
There are a lot of them.
    Mr. Sherman. And is it a violation of the WTO?
    Mr. Scissors. This is--I don't know----
    Mr. Sherman. Is it a violation of any provision that is 
proposed for TPP or TTIP, or is it a perfect way for China to 
claim that they are not cheating at all, because we don't 
bother to write rules that they even need to cheat?
    Mr. Scissors. I do not believe--I am not a lawyer. I do not 
believe it is a violation of the WTO or any plank of the TTP. 
So yes, it is a way for the Chinese to encourage domestic 
consumption that doesn't break existing rules.
    Mr. Sherman. And other than imposing a 25 percent 
additional tariff on everything made in China, can you think of 
another way for the United States to respond?
    Mr. Scissors. I think we should put it in our--it should be 
counted as a subsidy as part of our current subsidies approach 
which should be broader than it is and applied to China. I 
don't know about a 25 percent tariff but we should be 
responding to Chinese subsidies including that.
    Mr. Sherman. And this--I yield back.
    Mr. Poe. The Chair recognizes the other gentleman from 
California, Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you, Mr. Chairman. And let me just 
note that our friend from, Mr. Garrett from Virginia was 
correct in that the two Californians here today agree on most 
things and most of what Brad was suggesting and is suggesting 
is something I agree with. I don't agree with his political 
attributes on those things and, however, the specific points, 
policy points, he is right on target.
    The bottom line is we don't have all the Americans fighting 
for when they go overseas, our elites go overseas and are not 
looking out for the United States of America. The Chinese 
elites are looking out for what is good for China. Our elites 
are what is going to make a good deal for them.
    And I remember the good deals. I remember under Bill 
Clinton when we transferred our utmost, our most important 
rocket technology to the Chinese. The Chinese now have a very 
competitive space system because they got all their R&D from 
us. They don't look at us as being benevolent. They look at us 
as suckers and that is what we are when we permit our R&D to go 
and serve as the basis for producing wealth and competition on 
their side.
    Now the WTO--well, I voted against WTO. I didn't think it 
would work. Can any of you tell me if WTO has the answer to the 
challenge that we are talking about today and that is making 
sure that China is not able to amass wealth in an unfair way 
which it then uses to dominate not only their own people, the 
oligarchs in China dominating China, but also now the Third 
World through bribery, can the WTO handle it and, if so, what 
is that solution?
    Mr. Reinsch. Well, it is my turn to walk the plank so I 
will attempt an answer. I think it has some of the answers, not 
all of them. I am more positive about it, I think, than Rob is. 
I think in particular an area that is relevant to Made In China 
2025, which is one of the subjects of this hearing, is their 
rules about subsidies. And we have, you know, most countries 
have a domestic law that is designed to implement WTO rules 
against subsidies.
    We have one, actually the Chinese have one, the Europeans 
have one. Those rules I would argue have been fairly effective 
as far as they go. We use them very effectively on steel. We 
have essentially knocked Chinese steel out of our market 
directly through the use of subsidies complaints and----
    Mr. Rohrabacher. Okay. But we have seen some--you have seen 
some successes.
    Mr. Reinsch. It works. And when we litigate in the WTO 85 
percent of the cases we have brought we have won which is the 
best record in the world on that so yes. Does it solve all 
problems, no, because it doesn't have rules that cover all 
things.
    Mr. Rohrabacher. Okay. Do our other witnesses have 
something to say on that? Yes, sir?
    Mr. Atkinson. I think the biggest--there are a number of 
challenges with the WTO. Bill is right, it will solve some 
problems. I particularly agree on subsidies. We should do more 
there. There is a subsidy regime we should take a lot more 
action under. The biggest problem we have with the WTO though 
is it is very difficult to win a case unless you have U.S. 
companies being willing to come forward with evidence and stand 
up. American companies know that if they do that they will be 
punished in China quite severely. And that is not going away 
and you cannot blame American companies for that position, in 
my view. They are acting on the behalf of their companies and 
their workers.
    I think ultimately what we need to be thinking about is 
some longer term alternative to the WTO that is really designed 
around liberal market democracies that are committed to free 
trade and have a club there. And that is why I thought TPP and 
TTIP would be at the beginnings of beginning to assemble that.
    Mr. Rohrabacher. Well, our President today seems to think 
that unilaterally we can have something accomplished. I agree 
with him there. We should be courageous and that is what he is. 
Would you have an answer to that question?
    Mr. Scissors. Yes, I agree. I think I more agree with 
starting with the unilateral action. I would say that there is 
nothing about the WTO that should prevent us from taking the 
actions we need to take. We don't need to withdraw from the WTO 
because China is a bad WTO actor. I would say that is a 
mistake. I think Rob's suggestion on changing our antitrust 
laws to recognize the way China handles its state sector is 
long overdue. That would give us another set of tools that are 
WTO-compatible.
    I think a smaller thing is properly resourcing CFIUS. I 
agree with my colleagues we have good revisions to CFIUS 
pending in both Houses, but if they don't have the resources 
they can't do what is necessary. WTO doesn't stop us from doing 
that obviously.
    Mr. Rohrabacher. One last thought, and that is when we were 
sold the bill of goods and I voted against it, but when those 
people in Congress voted for WTO and voted for most favored 
nation status for China we were told that more trade and more 
economic activity going back and forth and building them into a 
modern society would create a more peaceful world and 
democratize China. It has been just the opposite. China has no 
more democracy than they had and now they are a greater threat 
to everyone. We have created a Frankenstein monster trying to 
look at that WTO as the possible solution to all these 
challenges.
    Mr. Poe. The gentleman's time has expired. The Chair 
recognizes another member from California, Mr. Issa, for 5 
minutes.
    Mr. Issa. Thank you, Mr. Chairman. As I have been going in 
and out and watching a lot of this, I wonder if there aren't 
two Chinas. And I would like to ask my questions about the two 
Chinas for a moment.
    For two decades I was an electronics manufacturer, operated 
in South Korea, Hong Kong, Taiwan, and then the company over 
the years has moved, after I left has moved into mainland 
China. Would one of you like to take on the question of is 
there a free enterprise China starving, dying to actually 
compete against their own state-owned enterprises?
    And if we, in fact, using WTO and any other resources, 
begin to target the state-controlled, those entities which have 
the capital behind them to fund losses in order to gain market 
share, aren't we also enabling, if you will, if you believe 
there is the free enterprise portion or semi-free enterprise 
portion that does exist in China and certainly existed in Hong 
Kong for decades. Anyone want to take that?
    Mr. Scissors. I will give a short, a partial agreement. I 
certainly agree there is a free enterprise China. Chinese 
private entrepreneurs complain bitterly about state repression. 
They take money out of the country legally and illegally 
because they don't feel like it is safe in China for them to be 
operating there.
    Mr. Issa. Fortunately it is safe in Vancouver.
    Mr. Scissors. Yes, right, because there are a lot of cities 
where you see free China, they are just not in China. So I 
agree with that completely and I agree that the U.S. should try 
to encourage it.
    I do think, Bill said this earlier and I am with him 100 
percent. Unfortunately he is right, the Party is just not going 
to tolerate that up to a point. We don't have that much ability 
to change the state-private balance in China because the Party 
under Xi Jinping thinks state control of the economy is 
absolutely vital. We should do it but it is not going to work 
that well unfortunately.
    Mr. Issa. Well, let's follow up though. They think it is 
absolutely vital because it works. What if we make a decision 
as a country--and by the way Mr. Rohrabacher and I, when I came 
into Congress he was already a pro-free China, a Taiwan 
advocate, if you will. Free trade for free people.
    One of the questions I have is, isn't that one of the 
fundamental decisions that we have the power to make to treat 
state monopolies and state-backed entities, entities that are 
able to compete because in fact the government has made 
decisions and is funding them, isn't that a strategy that at 
least we should explore? Because here is my question: We can't 
not trade with those 1 billion-plus people. We cannot ignore 
the market. But what we do seem to be able to do is to make a 
decision about do we allow ZTE back to buying our goods and, if 
so, under what conditions? Do we, in fact, have the ability to 
insist that there be a price to pay for stealing our 
intellectual property? You know, those are questions I think 
that this side of the dais certainly can begin looking at and 
that is why I asked it.
    Would anyone else like to comment on techniques that might 
allow us to change the government's behavior in a way in which, 
if you will, the real Chinese people could benefit? Because you 
know, this is certainly an area in which the President is 
trying to look at being pro billion-plus Chinese and anti bad 
behavior of the Chinese Government and its state-owned 
enterprises.
    Mr. Atkinson. I was in China several years ago meeting with 
a fairly large, but privately owned, company and I was sitting 
down with the CEO and one of his biggest complaints was about 
an unfair competitor from a Chinese SOE. He felt it was 
completely unfair. Now he can't say that outside the room when 
he was meeting with me, but he feels it.
    So I 100 percent agree with you that that is something we 
should be focusing on which is partly why I brought up the 
point about anti-trust, going after firms whether they are SOEs 
or firms that are just so tied-in with the government that we 
target them for unfair anti-competitive behavior. Also to Dr. 
Scissors' point about denying them access to our financial 
system, companies that have stolen IP or the like, so I agree 
that that is an important step.
    Mr. Issa. Well, let me ask one closing question in my few 
minutes and then you can take whatever time the chairman will 
give you on all the subjects.
    Should we--on the Judiciary Committee just on the other 
side, which I also serve on, should we, in fact, begin to look 
at the question posed this way: Inherently, isn't a government-
owned, -run, or, in fact, -subsidized enterprise automatically, 
essentially, a monopoly in the sense that it has powers that an 
ordinary company no matter what their market share would not 
have and wouldn't that be the first step to look at state-owned 
enterprises domestically, to be fair, and internationally, as 
in fact by definition, failing the first checkmark of an 
antitrust question about a monopoly?
    Mr. Scissors. I would just say, I have said for years that 
if you can't go out of business for commercial reasons that is 
the biggest subsidy of all. Loans are secondary to that even as 
big as they are and there are a whole set of Chinese state-
owned enterprises we can identify as they will never go out of 
business for commercial reasons.
    And to get to Congressman Sherman's point of view, that 
should also be part of our subsidies regime. If they cannot 
fail they are--they may not be monopolized but they are very 
heavily subsidized and we should treat them accordingly.
    Mr. Issa. Yes, Bill.
    Mr. Reinsch. I don't want to intrude on the chairman's 
rules. Can I respond to the question or do you want to go on?
    Mr. Poe. Okay.
    Mr. Reinsch. Thank you, Mr. Chairman. I appreciate it. I 
served on the U.S.-China Economic and Security Review 
Commission for 15 years and I had a colleague there who told me 
seriously that there are only two kinds of Chinese companies, 
those that are owned by the government and those that shut up 
and do what the government tells them. And I think there is a 
lot of truth to that and the problem with what you are 
suggesting is telling the difference.
    In some cases it is obvious because there is a very clear 
line of control that comes down from the government. In some 
cases it is not so clear. And it is an intriguing idea to, you 
know, adjust our economic policy based on, you know, their 
lines of control and lines of authority. It raises a host of 
sort of definitional and complicated questions that it would 
take awhile to sort out.
    Mr. Issa. Thank you.
    Thank you for your indulgence, Mr. Chairman.
    Mr. Poe. The Chair recognizes the gentlelady, patient 
gentlelady from Missouri.
    Mrs. Wagner. Oh, she is not so patient. Thank you, Mr. 
Chairman.
    Earlier this year I joined a pretty large number of my 
colleagues in urging the President to rethink the imposition of 
tariffs on steel, aluminum, and other goods. We, as I said, 
commend the President for standing up to China's bullying trade 
practices, but urge him to remember that our constituents 
depend upon free, fair, and healthy trade relations. And we 
must address China's predatory practices but prevent the axe 
from falling on American families.
    Dr. Scissors, how will China's retaliatory tariffs on 
soybeans affect Midwest economies?
    Mr. Scissors. I can't speak to how they will affect the 
whole economy, but I will say soybeans are probably the 
toughest case because there is no substitute for the Chinese 
market. For most American goods that might face Chinese 
retaliation there is some substitute. We are not a huge beef 
exporter or corn exporter, you know, go down the range of 
products. Soybeans we simply are, and of course the Chinese are 
going to go after where we are most vulnerable.
    So if we get into a tariff fight we either have to, we 
simply have to accept that soybean farmers are going to get 
hurt and we cannot provide them with another market. And I know 
you know very well they don't want government subsidies, they 
want to be able to compete and sell their product.
    Mrs. Wagner. That is correct. How can state governments 
reduce the effect of constricted access to Chinese markets?
    Mr. Scissors. I think the best thing, I am in favor of 
confronting the Chinese and it is easy for me to say because I 
am not a soybean farmer and I don't represent soybeans farmers 
and others who would be hurt by that. I think the best way to 
help Americans who are harmed by a trade interruption with 
China is to make sure that we have a stable policy. In other 
words, we are not saying tariffs are on, tariffs are off, 
tariffs are on, tariffs are off, you don't know how to run your 
business, you don't know how to run your farm.
    If we could get some consensus, which has been referred to 
in this room, among parties and between Congress and the 
administration and tell people this is going to be the trade 
situation with China for 7 or 8 years, they have a chance to 
make better decisions. If we yank them around, you know, not 
only do they lose their market, they have no ability to plan 
for an alternative.
    Mrs. Wagner. Mr. Reinsch, in the interest of running 
faster, if trade relations with China remain strained, 
commodity producers in Missouri will need to find new markets 
for their goods. ASEAN countries seem to be a natural trade 
partner. Over half of the United States' congressional 
districts export more than $100 million in goods to ASEAN every 
year. ASEAN countries themselves wish to see stronger trade 
relations with the United States. Can we pressure China to 
institute fairer trade practices through improving U.S.-ASEAN 
trade relations?
    Mr. Reinsch. Well, we could try. It is a noble effort. I 
can't resist saying that the best way to have done that was 
through TPP.
    Mrs. Wagner. I concur.
    Mr. Reinsch. Because that would have set up a framework in 
which they would, China would have to basically conform to the 
rules in order to expand. Instead what we have done is created 
a vacuum in that region that has allowed them to step in and we 
are playing defense. How we recapture it--and the 
administration has proposed bilaterals. I think that has 
potential but they have yet to propose any. If they were to 
pursue that line, and I was talking the other day to 
representatives of one of the governments, ASEAN governments, 
and they are actually, they are interested in it.
    Mrs. Wagner. I know they are.
    Mr. Reinsch. But it has been slow moving and our 
administration seems so far to have taken the attitude that 
they don't want to begin having a discussion unless the other 
government makes some concessions up front. And I think the 
other government's view is usually you make concessions as part 
of the negotiation, you don't make them in advance. So I am not 
sure that these things are going to move very fast, but that is 
the alternative the administration has put forward.
    Mrs. Wagner. Anyone else? China's ascension to the World 
Trade Organization has done little to change its predatory 
trade policies as we have discussed. Dr. Atkinson, how can the 
World Trade Organization be restructured to better restrain 
China's behavior?
    Mr. Atkinson. Well, there are several ways, one is just 
pressure. There is a Professor Mark Wu from Harvard, used to be 
at USTR as a lawyer. He has talked about how the practices of 
the WTO have frankly been biased sometimes. So I think just 
having pressure. I think Dennis Shea, now who is our Ambassador 
to the WTO, is trying to do that. Telling WTO in very clear and 
on certain terms that they have to be thinking much more about 
not sort of letting China win one and us win another. That is 
number one.
    Number two, we can bring more cases. There are some cases 
we can bring where the USTR decides to bring them on their own 
unilateral basis. We could do that. I think ultimately though 
having the WTO fix this problem is going to be hard unless we 
can have a more important restructuring of the WTO that doesn't 
require things being on paper to prosecute them. That is the 
big advantage the Chinese have. They can do things that--they 
come to the--show us the law. Well, we can't show them the law 
because there is no law. It is up here in their brain and 
they----
    Mr. Poe. The gentlelady's time has expired.
    Mr. Atkinson. Sorry.
    Mr. Poe. Thank you, Dr. Atkinson.
    Mrs. Wagner. Yes.
    Mr. Poe. The Chair recognizes the gentleman from Florida, 
Mr. Garrett--or Virginia.
    Mr. Garrett. I haven't moved to Florida yet. Thank you, Mr. 
Chairman. Thank you, gentlemen, for being here today.
    It is interesting that we should have started with some 
tangential discussion of CFIUS. And I think, I hope, and I have 
a finite amount of time, that we made some progress in the 
arena of protecting American intellectual property and 
technology, but there is an 800-pound proverbial gorilla in the 
room that I have discussed that I have never heard anyone else 
discuss. And I say this as much for the benefit of the other 
members of the subcommittee as for you gentlemen.
    I would ask you, is it possible and indeed probable that we 
bleed technology and innovation, that we bleed intellectual 
property by virtue of exploitation of the U.S. EB-5 visa 
program, Dr. Atkinson?
    Mr. Atkinson. I am just afraid I can't answer that. I don't 
know enough to answer that.
    Mr. Garrett. Dr. Scissors, are you familiar with EB-5 
visas?
    Mr. Scissors. I am. I am familiar with them as a conduit 
for Chinese investment in the U.S. I don't think--I think there 
are problems with the EB-5 program. I don't think that that 
is--I would say as we have discussed that the academic visits 
to China are a bigger source of technology loss than EB-5.
    Mr. Garrett. Well, let me--I am going to split hairs for a 
second. Bigger implies that both of them might be sources. One 
might be more prevalent than the other. I would point out the 
data as it relates to EB-5 visas, which are essentially visas 
purchased by ``foreign investors''--air quotes intended--in 
order to come to the United States to start business and create 
jobs ostensibly.
    However, comma, in one particular prominent example: 
GreenTech Automotive, partly found by former Virginia governor 
Terry McAuliffe, built a facility in Mississippi which is now 
defunct owing tens of thousands of back taxes, wherein they 
brought in ``Chinese investors.'' Now the Chinese have 
monopolized rare earth minerals like cobalt as it relates to 
battery technology, et cetera, these were used in these 
GreenTech Automotive cars.
    And once these investors bought EB-5 visas they had 
unfettered access to U.S. cutting-edge technology by virtue of 
their legal residency here--does that not sound about right?--
or they wouldn't have the same hoops to jump through to garner 
U.S. technology as visa residents of the United States ``job 
creators'' once they were here as they would if they were 
trying to export it through something like CFIUS, correct?
    Mr. Scissors. I am not saying there isn't a problem. As I 
understand the export control law it doesn't matter if you are 
Chinese or a resident or a citizen, if you are transferring 
controlled technology you are breaking the law. So export 
control should be able to handle that regardless of EB-5.
    Mr. Garrett. Having spent 10 years as a prosecutor wherein 
I would have been unemployed if people didn't break the law, I 
would posit that perhaps people break the law. So what I am 
driving at is that if you have access to the technology in a 
world where a thumb drive can contain any innumerable amount of 
technological secrets whether they are allowed to do it and 
whether they are doing it might be two entirely different 
things.
    So I would hope that we would take a long hard look at EB-5 
visas when quite literally if you combined every nation in the 
world's EB-5 visa recipients over a period of 5 years you would 
equal the number of Chinese EB-5 visa recipients in the United 
States in one. That is real and it is true. And so whether or 
not--and I have the utmost respect for the members of this 
panel. I mean you guys are awesome, but this might be one where 
I am a little bit more well studied perhaps, for a remarkable 
change, than some of the fine individuals before us today. And 
it is something we haven't looked at that we ought to be 
looking at because once you get the technology whether you are 
allowed to steal it or not doesn't mean you won't.
    The next thing is technological proliferation by virtue of 
the fact that the Chinese are smart enough to go where the 
technology and innovation is, which is in many cases our 
university and college campuses and the Confucius Institute, et 
cetera. What, if anything, should we be doing as it relates to 
reciprocity with these breeding grounds for ``Chinese values,'' 
cultures, and ideas at 524, I believe, locations in the United 
States when there is nothing similar advancing U.S. culture and 
ideas in China?
    Anybody? Yes, sir, Mr. Reinsch.
    Mr. Reinsch. Just on the Confucius Institute I would just 
comment when I served on the China Commission we did a study 
and report on exactly that subject and analyzed them and I 
would commend that to you. It basically----
    Mr. Garrett. I think I have looked at it. I think it says 
no smoking gun but cause for concern; is that right?
    Mr. Reinsch. Yes. That is exactly right.
    Mr. Garrett. See, I am all read, imagine that.
    Mr. Reinsch. You have a good memory, better than mine. I 
think that is probably still true, although that was a few 
years ago worth a second look----
    Mr. Garrett. Yes, sir.
    Mr. Reinsch [continuing]. Because it needs to be monitored.
    Mr. Garrett. Thank you, anything else?
    Mr. Atkinson. If I could just quickly comment on EB-5. One 
of the problems with EB-5 is most of those EB-5 applicants 
don't really create any jobs that wouldn't have been created 
anywhere, somebody else would have created them. So we have 
argued and we filed on--narrow it down significantly and if you 
do that you might address that and then perhaps more 
limitations on the Chinese EB-5.
    Mr. Garrett. Thank you so much. And I want to say this. I 
am about to mutter a word I don't often mutter, but quotas, for 
example. If we want to encourage development in the United 
States and other regions of the world, why are 80 percent of 
EB-5 visas year-in and year-out going to China when they could 
go to places like Nigeria or Brazil or Italy, et cetera?
    I don't normally champion such a thing but this EB-5 thing 
has manifested itself almost solely to the benefit of our chief 
rival economically and perhaps strategically. And so again I 
just wanted to shine some light on that.
    Thank you, gentlemen. I yield back my negative 19 seconds.
    Mr. Poe. I thank the gentleman from Virginia. The Chair 
recognizes the gentleman from Utah, Mr. Curtis.
    Mr. Curtis. Thank you, Mr. Chairman. And to our guests 
here, thank you for being here today and enduring these many 
questions.
    We are reading in the press today that the U.S. is readying 
another $200 billion of sanctions. It is seeming very 
predictable, right, they are calling this a trade war. And I 
guess my question for you today, I am going to leave this 
hearing and the press in Utah is going to ask me a very 
predictable question which is, where does this end? And if you 
could please tell me that I would be happy to report that to 
the press.
    Mr. Scissors. Well, I can tell you where it is going to 
have to end one way or another, how long it takes us to get 
there is a different story. The President is committed to 
reducing the trade deficit with China. We had a quote from 
Congressman Sherman saying it rose last year which it did.
    Now I am not going to defend the President's view of the 
trade deficit. I am simply saying he has had this position for 
a long time. He has been very clear about it. He has not been 
inconsistent. So we have a situation right now where our trade 
deficit with China is rising. You can make an argument our 
economy is growing faster than theirs even though they don't 
report that. We are richer than them. It is going to take some 
work to get the trade deficit under control which means we may 
get a series of 10 percent tariffs applied to all Chinese goods 
for awhile.
    But that is where it is going to end. It is going to end 
because that is the President's goal with the U.S. bilateral 
trade deficit with China at least stabilizing.
    Mr. Reinsch. You want to know where it is going to end. I 
have to say this reminds me of, you know, two 8-year-olds 
having a staring contest waiting to see who is going to blink 
first. And the President has only one tactic which is to 
escalate, up the ante. He has allowed time with the 200. He has 
allowed time for more negotiations. There may be some, there 
may not be.
    If you go back to my statement, I am skeptical for reasons 
I indicated that that will accomplish much but there is a 
possibility there. I think if they don't accomplish anything he 
will move to round 2 and impose those tariffs. The Chinese have 
been very clear that they will respond in like amount in kind. 
It is already more trade than we have with them but they will 
do other things.
    Read today's clips, you will see a lot of speculation about 
what those other things might be. And then he will probably 
respond with a third tranche and I am very gloomy where this 
goes because in the end all trade is subject to punishing 
tariffs and there is going to be a lot of collateral damage on 
both sides.
    Mr. Curtis. So I feel that that is true and the worry in 
Utah is the path is littered with dead companies. And right 
along the way that, Dr. Scissors, you referred to the 
unpredictability and that has hit Utah in a really hard way is 
assuming that these tariffs are coming in already, how you 
place orders, how do you plan for the future and all of those 
things.
    I am curious to know if any of you are aware of a different 
ending that still gets us the same results using different 
tools. So is the only tool available to us to fix this 
imbalance a tariff or are there other tools that we could be 
using?
    Mr. Atkinson. So we had an op-ed, I believe, in The Hill or 
Politico recently, 10 non-tariff alternatives the Trump 
administration could use as weapons or tools or tactics. There 
are a number of them we could use. And I have talked about some 
them, others have talked here. What I find striking with what 
the Trump administration is doing is they are pretty much using 
only one tool. They have a WTO case but they are pretty much 
only using one tool.
    I would disagree a little bit with maybe Bill in saying 
that I don't think the Chinese are as fundamentally committed 
to this as--I don't think forcing them to stop intellectual 
property theft or forced tech transfer or massive subsidies are 
a threat to the Party. I think there is more leeway that the 
Chinese could give without giving up Party control of China or 
even giving up the goal of growing their tech economy.
    So I could see one outcome of this is the Chinese 
essentially decide they don't want to have that much pain and 
make some modest concessions. I don't think we can rule that 
out. I don't know what the odds of it are. I don't know that 
anybody knows that but that is one outcome.
    Mr. Curtis. Do modest concessions get us to where we need 
to go or do we look at it more dramatically?
    Mr. Scissors. I think Rob is being realistic, but I don't 
think modest concessions get us where we need to go and this is 
one of the reasons why I think there is going to be pain. And 
when I was in the White House meeting that kicked off the 301 
tariffs that led to this point I said, if you are not willing 
to stick to this for 3 years and suffer some pain don't bother, 
because that is what it is going to take to get the Chinese to 
change. I don't think tariffs are the best weapon. I don't 
think they are the only weapon. But I do think that if you 
don't have tariffs in your pocket and you aren't willing to use 
them you get less attention from China and it takes longer.
    So, you know, do I think we should only be using tariffs, 
no. Do I wish we were using something else first, yes. But I 
don't think we are going to be able to get to where we want to 
go without tariffs and without pain.
    Mr. Curtis. Unfortunately I am out of time. Mr. Chairman, I 
yield.
    Mr. Poe. I thank the gentleman. It seems to me that maybe 
all is not gloom, doom, and despair. That the information you 
have given us of holding China back and running faster is 
something that Congress, specifically these two committees, 
need to move forward on right now. That is our responsibility.
    We are not going to be here in 6 years debating this, Dr. 
Scissors. There are several of us who won't be here next year. 
But it is absolutely necessary that Congress assumes its role 
and to lead on this issue of dealing with the cheaters in 
China. But more than just bemoan the fact, we need to be 
proactive on doing what is best for the United States. Your 
information has been of great resource and we probably will 
have you back again at a later time to see if some of the 
changes that we are going to make hopefully through legislation 
are effective or not. I do not want to be a victim of what my 
grandfather always would say: When all is said and done, more 
is said than done. And so it is time to get something done.
    Thank you very much for your participation and thank all 
the people that are in the audience as well for being here, and 
the members. These two subcommittees are adjourned.
    [Whereupon, at 4:20 p.m., the subcommittees were 
adjourned.]

  
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